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Why are the adjustments important to the preparation of the financial statements? (Check all that apply.) Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results. Unadjusted financial statements will always show net income because the expense accounts have not been brought up to date. Adjustments ensure that the revenues earned and expenses incurred during the period are reflected in the income statement. Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes. Confidence Level

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Answer:

  • Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results.
  • Adjustments ensure that the revenues earned and expenses incurred during the period are reflected in the income statement.
  • Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes.

Explanation:

The balance sheet is not meant to show how a company works, it is rather a picture of how the company works. If your balance sheet is a picture of your house, you can see the different characteristics of your house and even get an idea of how good or bad the weather is. But presenting an unadjusted balance sheet is like taking a picture of the wrong house. That is exactly the reason why even though almost 100% of the businesses use software for accounting purposes, the IRS gives them a few months before presenting their balances because adjustments are necessary.

Think about the income statement and remember that revenue is recognized only when the company has significantly completed the revenue earning process. If the company sells a lot during the holiday season and a big portion is sold as accounts receivable. If you had to present an unadjusted income statement  on January 2, you would have to estimate what percentage of your sales are not going to be collected or are going to be collected late. But if you have a couple of months to adjust your income statement then you will know for sure exactly how much was your revenue.

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